Dindigul Farm Product
- Dindigul Farm Product is coming out with initial public offering (IPO) of 64,50,000 shares of Rs 10 each in a price band Rs 51-54 per equity share.
- The issue will open for subscription on June 20, 2024 and will close on June 24, 2024.
- The shares will be listed on BSE SME Platform.
- The face value of the share is Rs 10 and is priced 5.10 times of its face value on the lower side and 5.40 times on the higher side.
- Book running lead manager to the issue is Beeline Capital Advisors.
- Compliance Officer for the issue is Gurunathan Uma Kanth Narayanan.
Profile of the company
Established in 2010, it is primarily engaged in processing of whole milk and skimmed milk to make dairy ingredients including, milk protein concentrates, skimmed milk powder, dairy whitener, whey protein concentrate, milk whey powder, casein, unbranded cream, butter and fat filled powders for infant milk formula. Its processing facility is situated at Dindigul and is spread over 15 acres. Its management system has been assessed and determined to comply with the requirements of Food Safety System Certification Scheme (FSSC) 22000. It also follows and complies with requirements of various relevant authorities in its industry such as Food Safety and Standards Authority of India (FSSAI), Halal, Kosher, Export Import Council of India, Europe Regulations in respect of certain of its products. It has also obtained registration cum membership certificate from Agricultural and Processed Food Products Export Development Authority.
It places significant emphasis on quality control and assurance processes across the business model ensuring and setting the right customer expectation and assurance models. The whole milk procured by it is tested by automatic Milk analysers placed at Village Level Milk Collection centers and a combined quality and sampling methods at Chilling Center Level. Its key products have received and tested in regular intervals by National Accreditation Board for Testing and Calibration Laboratories (NABL) approved food testing labs to comply the requirements of the above stated quality certifying / assuring / inspection authorities Like FSSC etc. Quality food safety forms a part of its policy. It has well defined documented quality system and Standard Operating procedures (SOPs) which are monitored at various stages of procurement and processing.
It markets its products under the brand name ENNUTRICA, ActivDay and currently supply to a wide number of customers from different industries. For financial year 2022-23, It has sold products in more than 15 states domestically and 3 countries internationally. However, it aims to expand its international operations by looking to enter more Association of Southeast Asian Nations (ASEAN) and European countries. IT mainly supplies products to Dairy Industry, Food Ingredients industry, nutrition industry, dairy industry, ice cream industry and baking industry.
Proceed is being used for:
- Capital expenditure
- Working capital requirements
- General corporate purposes
Industry overview
The Dairy sector in India has grown substantially over the years. As a result of prudent policy interventions, India ranks first among the world’s milk producing nations, achieving an annual production of 221.06 million tonnes during the year 2021-22 as compared to 209.96 million tonnes during 2020-21 recording a growth rate of 5.29%. Food and Agriculture Organization (FAO) Food Outlook (November 2022) reported 1.34% increase in world milk production from 912.6 million tonnes in 2020 to 924.8 million tonnes in 2021 (estimates). This represents a sustained growth in the availability of milk and milk products for the growing population.
Dairying has become an important secondary source of income for millions of rural families and has assumed the most important role in providing employment and income generating opportunities particularly for women and marginal farmers. The per capita availability of milk has reached a level of 444 grams per day during the year 2021-22 which is more than the world average of around 320 grams per day in 2021 (estimates) (Food Outlook November 2022). Most of the milk in the country is produced by small, marginal farmers and landless labourers.
India, about 46% of the milk produced is either consumed at the producer level or sold to no producers in the rural area, the balance 54% of the milk is available for sale to organised and unorganised players. Organised sector comprise of Government, Producers’ Owned Institutions (Milk Cooperatives & Producer Companies) and Private players which provides fair and transparent system of milk collection round the year at the village level. Unorganized/informal sector involves local milkman, dudhias, contractors etc. and they are mostly found to be opportunistic, as there is no uniformity of milk price paid to producers and it varies depending upon the situation. Possibility of adulteration of milk is higher among these unorganized groups.
Pros and strengths
Diverse product basket: It currently manufactures a variety of products. Its diverse product offering allows it to cater to the increasing requirements of its customers in various industries. It is marketing its products under the brand name ‘ENNUTRICA’ and ActivDay and its Milk Protein Concentrates, Casein, Skimmed Milk powder, Whey Powder, Dairy Whitener and Sodium Caseinates are mainly used in nutrition industry, dairy industry, ice cream industry and baking industry. Its relationships and ongoing active engagements with customers also allow it to plan its capital expenditures and enhance its ability to benefit from increasing economies of scale with stronger purchasing power for raw materials and a lower cost base.
Milk procurement process: Whole milk is one of its key raw materials for its business. Its procurement operations consist of an average procurement of approximately 50,000 litres per day of milk directly and around 30,000-1,00,000 litres per day of whole milk from open market or third party suppliers. As on the date of the RHP, it has built a network of more than 150 village collection centers, access to more than 4,000 farmers and more than 50 dairy farms. It procures whole milk directly from the farmers and through third party suppliers.
Manufacturing facility: Its manufacturing infrastructure is a key driver of its business. Its current facility is situated at Dindigul and spread over more than 15 acres. Its processing facility is equipped with machinery and equipment like Micro Filtration, Ultra Filtration, Nano Filtration, reverse Osmosis, Evaporation, Crystallization and Drying processes and Pasteurization Techniques as followed by the International standards for Dairy processing. It has sourced some of its key machineries from international reputed dairy technology brands. It further intends to start with production line of Butter with its planned capital investment.
Risks and concerns
Significant portion of revenue from certain customers: It is dependent on a limited number of customers for a significant portion of its revenues. Revenues generated from sales to its top 10 customers represented 70.56%, 79.36%, 73.11% and 74.87% of its revenue from operations during the period ended December 23, 2023, Fiscal 2023, Fiscal 2022 and Fiscal 2021. While it has developed strong and long-term relationships with certain of its customers and continue to add new customers in the normal course of business, there can be no assurance that its significant customers in the past or its newly acquired customers will continue to place similar orders with it in the future. The loss of one or more of these significant customers or a significant decrease in business from any such key customer, whether due to circumstances specific to such customer or adverse market conditions affecting the industry in which its customer operates or the economic environment, may materially and adversely affect its business, results of operations and financial condition.
Dependent on third party transportation and logistics service providers: It majorly relies on third party transportation and logistics providers for delivery of its raw materials and products Though its business has not experienced any major disruptions due to transportation strikes in the past, any future transportation strikes may have an adverse effect on its business. These transportation facilities may not be adequate to support its existing and future operations. In addition, such goods may be lost or damaged in transit for various reasons including occurrence of accidents or natural disasters. There may also be delay in delivery of products which may also affect its business and results of operation negatively.
Working capital requirement: Its business requires working capital for day-to-day operations, procurement of raw materials and production. Due to seasonal characteristic / nature of the business, it has to stock up in the flush season and hold the material as stocks till the lean season to take advantage of the market dynamics. Its growing scale and expansion, if any, may result in increase in the quantum of current assets, which will increase its working capital requirements. Its inability to maintain sufficient cash flow, credit facility and other sources of funding, in a timely manner, or at all, to meet the requirement of working capital or pay out debts, could adversely affect its financial condition and result of its operations.
Outlook
Dindigul Farm Product is primarily engaged in processing of whole milk and skimmed milk to make dairy ingredients including, milk protein concentrates, skimmed milk powder, dairy whitener, whey protein concentrate, milk whey powder, casein, unbranded cream and butter and fat filled powders for infant milk formula. Its processing facility is situated at Dindigul and is spread over 15 acres. Its management system has been assessed and determined to comply with the requirements of FSSC 22000. On the concern side, the market wherein it operates is competitive, rapidly evolving and is characterized by frequent introductions of new products. It expects competition to persist and intensify in the future as the market wherein it operates is constantly evolving and growing with new and existing competitors devote considerable resources to introducing and enhancing products.
The company is coming out with an IPO of 64,50,000 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 51-54 per equity share. The aggregate size of the offer is around Rs 32.90 crore to Rs 34.83 crore based on lower and upper price band respectively. On performance front, the total revenue from operations for the year ended on FY 2022-23 was Rs 8,157.74 lakh as compared to Rs 2,831.88 lakh during the FY 2021-22 showing an increase of 188.07%. Profit after tax increased to Rs 516.67 lakh in FY 2022-23 from loss Rs 416.58 lakh in the FY 2021- 22. Going forward, it intends to use a portion of Net proceeds for setting up of butter making line, sodium caseinate line (multi product line which can produce different products at different capacities), it proposes to commission a retail packing line which will enable it to move more products in retail chains. It also propose to modify its existing capabilities by commissioning an infant milk retail packing prep line, to capitalise the acquired knowledge and leverage the experience it possess about infant milk powder.
